Rogue banks contribute to political malaise

Commentary: ‘Too big to jail’ taints the financial system

WASHINGTON (MarketWatch) — Among the factors contributing to the political malaise gripping this country perhaps the most perplexing is that, amid billion-dollar settlements by banks for patently criminal activity like money laundering and rate fixing, no one has gone to jail.

Global banks have become rogue institutions that have successfully put themselves above the rule of law in the name of systemic stability, so that “too big to fail” has become, as a New York Times editorial said last week, “too big to jail.”

There are many things to be unhappy about as 2012 draws to a close. Our nation’s biggest economic problem is unemployment, but the only government officials who seem concerned about that are unelected central bankers such as Federal Reserve Chairman Ben Bernanke.

Our elected politicians, meanwhile, remain fixated on a nonexistent debt “crisis” in keeping with their major campaign contributors’ obsession with lower taxes.

There are other things, of course. Weighing most heavily on the public mood is the horrific massacre of schoolchildren last week in Connecticut, which raises vexing issues about gun control and, often overlooked, the lack of public services for families coping with mental illness.

But it is the banks, where you have demonstrable fraud that cost clients billions or allowed laundered criminal profits to escape detection, that you would think present an open-and-shut case.

Reuters

Treasury Secretary Timothy Geithner has protected the interests of large banks above all other considerations.

Even this week’s $1.5 billion fine of UBS
UBS, -1.93%
for rate-fixing, which, finally, included a guilty plea for one of its subsidiaries, has so far resulted in indictments only of two low-level former traders instead of the people running the company and ultimately responsible for the criminal activity. Read some of the more brazen details of UBS’s settlement.

Last week’s settlement of $1.9 billion with HSBC
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for money-laundering didn’t even include a guilty plea by the organization or any responsible individuals, and maintained the pretense that fraud on this scale was simply a question of insufficient internal controls. Read more details of HSBC’s settlement.

Let’s be clear, fines only penalize shareholders — and they deserve some penalty for the board’s lax supervision — but, to paraphrase a popular slogan, institutions don’t perpetrate crimes, people do, and these people are criminals who belong in jail.

But the administration, reportedly at the behest of Treasury Secretary Timothy Geithner, has refrained from pursuing criminal indictments for fear of destabilizing the world financial system by bringing charges against these “systemically important” financial institutions or their executives.

Geithner has been solicitous of the banks’ welfare from his days as president of the New York Fed, even before the financial crisis broke out, and he has consistently protected their interests above all else during his tenure at Treasury.

At the same time, he has opposed what to many is the obvious solution to the problem of banks that are so big their failure threatens the entire system — making them smaller.

Geithner, who wanted to quit the Treasury post last year and is due to leave soon, almost certainly will, like many of his predecessors, land a cushy, high-paying job in financial services.

At the Department of Justice, Attorney General Eric Holder has failed to put a single banker or former banker in jail after nearly four years in office. He apparently has postponed his departure, perhaps so he can close out a few billion-dollar corporate settlements to redeem his lackluster tenure.

Before his appointment, Holder worked at the law firm of Covington and Burling — which represents clients like, well, UBS — and he will undoubtedly return to his lucrative corporate practice after he leaves public service. Other top officials at Justice have similar backgrounds and similar futures.

In Congress, meanwhile, committee chairmen who otherwise are eager to hold investigative hearings at the drop of a hat are curiously silent on the issue of how so much fraud can be committed and so much evidence gathered without a single indictment of a major bank executive.

The revolving doors between government and Wall Street and K Street allow administration officials to earn really big bucks after they leave office — providing they behave themselves while there. Lawmakers, too, are dependent on corporate contributions to stay in office and often benefit from generous lobbying contracts when they leave.

These practices, with their decided whiff of corruption, are hardly new. Somehow it all now seems more transparent and the stakes much bigger. In any case, it is profoundly discouraging and may be a major cause of our malaise.

In the meantime, banking executives responsible for what was in all evidence massive fraud that led to a worldwide financial crisis are still at large, and these rogue institutions continue criminal activities that undermine our financial system far more seriously than any putative risk from their top executives being brought to justice.

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